The Index of the Financial Safety (IFS) of South Africa and Bayesian Estimates for IFS Vector-Autoregressive Model

Matkovskyy, Roman (2012): The Index of the Financial Safety (IFS) of South Africa and Bayesian Estimates for IFS Vector-Autoregressive Model.

Abstract

This paper proposes an approach to explore the strength of the financial system of a country against the possibility of financial perturbations appearing based on the construction of the Index of Financial Safety (IFS) of a country. The Markov Chain Monte Carlo (MCMC) and Gibbs sampler technique is used to estimate a Bayesian Vector Autoregressive Model of the IFS of South Africa for the period 1990Q1-2011Q1 and to forecast its value over the period 2011Q2-2017Q1. It is shown that the IFS could capture the disturbances in the financial system and the BVAR models with the non-informative and Minnesota priors could predict the future dynamics of IFS with sufficient accuracy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial safety, index of financial safety (IFS), Bayesian Vector Autoregressive (BVAR) model, MCMC, Gibbs sampler, South Africa
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; G - Financial Economics > G0 - General > G01 - Financial Crises

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